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Thursday, Nov. 22, 2012
Pension fund phase-out on the way
The health and welfare ministry has come up with a plan to phase out the type of corporate pension fund known as kosei nenkin kikin over a period of 10 years. The proposal follows AIJ Investment Advisor Co.'s reported loss earlier this year of most of the ¥145.8 billion in pension assets under its management as a result of bad investments.
Kosei nenkin kikin manages private corporate pension assets as well as part of the pension premiums that must be paid into the nation's kosei nenkin pension program, which is a pension plan for corporate workers.
Because changing times have made the kosei nenkin kikin obsolete, the ministry's proposal is a step in the right direction. But it contains problems that must be resolved if it is implemented.
During Japan's period of high economic growth, the kosei nenkin kikin system had a significant advantage. Because of high stock prices and high interest rates, kosei nenkin kikin funds were able to yield high returns. But in the postbubble economy, many kosei nenkin kikin funds were no longer able to secure high enough yields and started to tap into their accumulated kosei nenkin premium reserves to provide pensioners with their benefits.
In the last half of the 1990s, there were 1,888 kosei nenkin kikin funds. That number fell to 577 in fiscal 2011, covering some 4.37 million workers and some 2.93 million pensioners. But 286 of these funds now suffer shortfalls in their reserve funds for pension premiums. The total shortfall amounts to some ¥1.1 trillion.
Under current regulations, if kosei nenkin kikin funds choose to disband because of bad performance, they have to pay back the kosei nenkin pension premiums to the state. But most of them are so weak financially at present that they cannot afford to do so.
The ministry proposes either to reduce the amount of money that such funds are obliged to pay back in the first five years or to lengthen the period of installment payments.
Under the current rule, if member companies of such funds go bankrupt, the remaining companies must pay back the portion of kosei nenkin pension premiums for which the bankrupt companies were responsible in addition to their portion of the premiums. The ministry proposes abolishing this collective responsibility requirement. But more conscientious companies that have made financial efforts to prepare for paying back their kosei nenkin pension premiums to the state will likely feel, with justification, that the proposal is unfair.
Eventually premiums that have accumulated in the reserve fund of the kosei nenkin pension program will have to be used to help disband kosei nenkin kikin funds and to pay back to the state. Although the shortfall of ¥1.1 trillion in kosei nenkin kikin funds is small compared with the some ¥100 trillion accumulated in the kosei nenkin reserve fund, some corporate workers will oppose the ministry's proposal.
The ministry should not abandon its principle of insisting that kosei nenkin kikin funds make efforts to help themselves.